Tag Archives: U.S. shale

Marathon Petroleum’s $15.8 billion deal to expand its rapidly-growing pipeline network highlights one of the most surprising developments in the shale era: after being written off a few years ago, refiners are printing money.

Since June 2011, when Marathon Oil spun off what some thought would be low-margin refining and pipeline units, the top four energy performers on the Standard & Poor’s 500 Index were fuel processors Tesoro Valero Energy, Marathon and Phillips 66. Tesoro more than quadrupled.

Read that again: the best energy stocks in the last four years were the assets that many thought were either doomed or not worth owning as a US energy renaissance took hold.

The producers that drove the shale revolution have suffered as crude prices fell by more than half in the worst oil crash in a generation.

Why? The main reason is that refiners have access to cheaper crude. The tremendous amount of new oil produced in shale regions is essentially landlocked, because most US exports are banned. That means refiners pay less in the US than competitors in other regions.

Another key reason is that refiners have invested billions to build, expand and update their pipelines and logistics businesses, as Marathon did Monday. Along with Marathon, Tesoro, Valero and Phillips 66 have all created or expanded their pipeline units, helping minimize the inherit volatility in the refining business.

After 18 years of working as an inspector, Greg McGeary took his first job in oil and gas last winter inspecting pipelines in the Marcellus Shale for a Florida-based startup.

It was a predictably tough gig — walking a pipeline in all types of weather and driving three hours a day to and from remote locations. That’s why the pay, what would amount to $150,800 a year for a typical work week, was high. But in oil and gas, there may not be such a thing as a typical work week.

This was Mr. McGeary’s first experience with a dayrate — $580 a day in his case — a common practice in the industry that many firms now are changing under mounting pressure from government regulators and civil lawsuits.

Lawyers involved in these types of suits say they are, in part, a symptom of the boom and bust culture in the oilfield: the boom brings in industry novices and exposes workers to long, hectic hours and the bust sends some looking for compensation they feel they couldn’t reap during peak time.

“I was told that the job was six days a week, 10 hours a day,” he said. But when he worked more than that, his pay remained the same.

Mr. McGeary’s job was to follow welders and check their work. Where pipelines crossed streams or other bodies of water, the workers had 24 hours to restore the sites to their original condition, which sometimes meant working well past his promised schedule.

Many days he didn’t know “when or if” he’d be returning home.

“I put my family through hell,” Mr. McGeary said. “I have a little girl who plays softball and I’d tell her, ‘I’ll take you to your game at night.’ I’m supposed to be done at 4 o’clock. And 4 o’clock rolls around and they say, ‘Oh, no,’” extending his shift for another eight hours.

The day rate was blind to the twists and turns of the job.

When Mr. McGeary bought his concerns to the company, “I was just told that I agreed to a 10-hour day and it didn’t matter that we sometimes had to work more — that’s all that they could pay me. In one particular instance, I worked 30 straight hours and I was told I could only get paid for 10,” he said. The company, North American Pipeline Inspection, denies that Mr. McGeary worked that long.

After five months on the job, Mr. McGeary quit and went to work for another pipeline firm, returning to an hourly wage. Two months later, in July, he filed a collective action lawsuit against North American Pipeline Inspection, on behalf of all of its employees in a similar predicament. About 30 other former workers have joined the lawsuit.

Russia’s oil output has reached a post-Soviet high after it averaged 10.58 million barrels of oil per day in 2014.Oil output rose by 0.7% in the year, according to data from the Energy Ministry. The increase in production was bolstered for the most part by small producers, many of which are private companies, and which collectively increased output by 11% to just over one million barrels of oil per day.Oil and gas production account for about half of Russian’s budget, and make up around two thirds of the country’s overall exports. Russia’s state-run oil giant Rosneft produces more oil than Opec members Iraq or Iran. However Rosneft saw its output fall 0.7%, amid problems at its West Siberian oilfields.The price of crude oil has slid dramatically in latter half of 2014 – a corollary of increased shale exploration in the US, which became an exporter again for the first time in decades.Crude oil reached a daily closing price of $110.53 on September 6, 2013, and fell to a current level of $53.64 as of December 30, 2014.

Oil market analysts are debating if oil will fall to $50. In North Dakota, prices are already there.Crude sold at the wellhead in the Bakken shale region in North Dakota fell to $49.69 a barrel on Nov. 28, according to the marketing arm of Plains All American PAA Pipeline LP. That’s down 47 percent from this year’s peak in June, and 29 percent less than the $70.15 paid for Brent, the global benchmark.The cheaper price for North Dakota crude underscores how geographic and logistical hurdles can amplify the stress that plunging futures prices have put on drillers in new shale plays that have helped push U.S. oil production to the highest level in 31 years. Other booming areas such as the Niobrara in Colorado and the Permian in Texas have also seen large discounts to Brent and U.S. benchmark West Texas Intermediate.

Houston, Tx has seen significant growth in recent years from the shale boom. A material amount of the companies which have the highest revenues and/or employ the most people in the Houston metropolitan area are in the energy industry or provide services to the energy industry. Many of these companies saw big declines in their stocks on November 28, 2014 after OPEC announced they would not be curtailing production.

Shale producer equities experienced their largest one day decline as a group on November 28, 2014 in reaction to the OPEC announcement from the previous day stating they would not be curtailing production. The OPEC announcement resulted in an over 10% decrease in WTI taking oil down to prices not seen since May 2010 and in 2009.

OPEC’s contentious decision to keep its production target, leaving the market with a supply glut, could trigger a wave of debt defaults by U.S. shale oil producers, warn analysts.The 12-member oil cartel on Thursday said it would stick to its output target of 30 million barrels a day, triggering a sharp decline in oil prices, with U.S. crude futures tumbling nearly $6 to $67.75 on Friday – the lowest since May 2010.Neil Beveridge, senior oil analyst at Sanford C. Bernstein, told CNBC the plunge in oil prices raises the risk of bankruptcy for U.S. shale players.

The decision by OPEC on Thursday not to cut oil production, despite a price decline of over 30% since June, means U.S. shale-oil producers may soon find business to be unprofitable.Hydraulic fracturing is far more expensive than simply pumping from oil wells that tap into huge reserves close to the surface. That is why Saudi Arabia is perfectly willing to let oil prices fall even further as it defends its market share. That country has another clear advantage: The kingdom at any time can easily raise or lower its production.For U.S.-shale companies, long-term expansion plans may have to be severely curtailed, especially if OPEC and major non-OPEC oil producers, including Mexico and Russia, continue on their current path.The S&P 500 Index SPX, -0.37% was little changed Friday, but among 186 U.S. oil stocks with market values of more than $50 million, 56 were showing double-digit declines in early trading.

OPEC’s decision to cede no ground to rival producers underscored the price war in the crude market and the challenge to U.S. shale drillers.The 12-nation Organization of Petroleum Exporting Countries kept its output target unchanged even after the steepest slump in oil prices since the global recession, prompting speculation it has abandoned its role as a swing producer. Yesterday’s decision in Vienna propelled futures to the lowest since 2010, a level that means some shale projects may lose money.“We are entering a new era for oil prices, where the market itself will manage supply, no longer Saudi Arabia and OPEC,” said Mike Wittner, the head of oil research at Societe Generale SA in New York. “It’s huge. This is a signal that they’re throwing in the towel. The markets have changed for many years to come.”